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ICD Thomson Reuters release Islamic Development Indicator results 2014

September 1, 2014

For the second consecutive year, Islamic Corporation for the Development of the Private Sector (ICD), the private sector development arm of the Islamic Development Bank (IDB), with the collaboration of Thomson Reuters, present findings from the Islamic Finance Development Indicator (IFDI 2014).

Khaled Al Aboodi, CEO of ICD said: "The ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI) is the only numerical measure representing the overall health and development of the Islamic finance industry worldwide. It is an unbiased, multi-dimensional barometer that considers the progress of the Islamic finance industry beyond measurement of profits and assets growth. In 2013 we saw awareness of Islamic finance spread worldwide. The next step is to translate that awareness into action. The ICD will continue to facilitate the use of Islamic financial products and services in order to empower the private sectors in OIC countries."

The IFDI measures five key components that combine to depict the bigger picture of the state of Islamic finance: Quantitative Development, Governance, Corporate Social Responsibility, Knowledge and Awareness.

The IFDI global average development value is 10. Malaysia is the most developed Islamic finance nation out of 92 countries, scoring 93. Bahrain (76) and Oman (64) are second and third, respectively. The other four GCC countries are also ranked in the top 10, along with Jordan, Pakistan and Brunei.

The Awareness Indicator value is the highest global average across the IFDI 15 development points, held up by a high global average value of 29 development points for the News sub-indicator, which assessed 92 countries. The other two sub-indicators for Awareness are: Seminars (global average value 7) and Conferences (global average value 9). There were 231 Islamic finance seminars and conferences and 14,490 exclusive news in 2013.

There is a gap between Awareness development and Quantitative Development, which scored the lowest global average of 6. Significantly, while the Awareness Indicator scored the highest it saw the lowest percentage of countries, 21 per cent, scoring higher than the global average. This indicates that while awareness about Islamic finance is widespread it is not deeply-rooted enough to be translated into action. Islamic finance activities are still largely concentrated in the GCC and Malaysia, with Jordan, Pakistan and Brunei also in the top 10 mix. Action is needed to move all other countries from awareness to quantitative development.

Moving from Awareness to Knowledge is one challenge for the Islamic finance industry worldwide. The global average development value for the Knowledge Indicator, eight, is second lowest only to the Quantitative Development Indicator, which is a hopeful sign that widespread awareness is being slowly translated into knowledge via courses, degree programmes and research. Globally, 66 countries contributed to this Indicator.

There were 477 institutions providing Islamic finance courses and degrees and the number of research papers published between 2011 and 2013 reached 1,363. Of note, there is greater interest to learn about Islamic finance in Sub-Saharan Africa, which closely trails leaders Europe and Other MENA in the courses category and is home to more institutions offering degrees than Southeast Asia. In Southeast Asia and the GCC, more institutions offer degree programmes than courses, which reflects a focus on longer-term human capital development.

The global average score for the Quantitative Development Indicator stands at a very low six development points. There is a highly uneven development of Islamic finance worldwide, even among the top 10 most developed nations. 53 points separate first place Malaysia and fifth placed Qatar and there are 64 points between Malaysia and tenth-placed Brunei. The global aggregate value of Islamic finance assets reached $1.658 trillion at the end of 2013 mainly from Islamic banking assets which accounted for 73 per cent followed by Sukuk that contributed $279.8 billion. Other Islamic finance institutions (OIFIs) contributed $85.5 billion while Islamic funds and takaful assets stood at $50.7 billion and $27.8 billion, respectively. Islamic finance assets are expected to reach up to $2 trillion within a couple of years.

Governance considers Regulations, Sharia Governance and Corporate Governance. The global average value for Governance is 12 development points. Only 28 out of 92 countries have Islamic finance regulations. Unsurprisingly, the overwhelming majority of jurisdictions (86 per cent, 24 countries) with regulations are Muslim-majority countries. Of the remaining four, Nigeria has a significant Muslim population and three Muslim-minority countries round off the top 10: Mauritius, Singapore and the Philippines. Only four countries have full coverage of regulations: Bahrain, Malaysia, Nigeria and Pakistan. Bahrain pips Malaysia to the top spot with its superior Sharia Governance score.

The CSR Indicator considers CSR Funds Disbursed and CSR Disclosure. Overall, average disclosure for financial reporting is high but there is a low level of CSR disclosure; on average only 30 per cent of items are disclosed. There is particularly a lack of disclosure of training and employee welfare activities. Oman was the best performer for CSR disclosure but distributed a far lower amount of CSR funds than Jordan and Bahrain.

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Source: CPI Financial

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